An analyst gathers the following information for an equal-weighted index comprised of assets Able, Baker, and Charlie: Security Beginning of Period Price (h) End of Period Price (h) Total Dividends (h) Able 10

Economics Nov 12, 2020

An analyst gathers the following information for an equal-weighted index comprised of assets Able, Baker, and Charlie: Security Beginning of Period Price (h) End of Period Price (h) Total Dividends (h) Able 10.00 12.00 0.75 Baker 20.00 19.00 1.00 Charlie 30.00 30.00 2.00 The price return of the index is: A. 1.7%.

Expert Solution

Computation of Price Return of the Index:

Return on Able Security = (Ending Price + Dividends - Beginning Price) / Beginning Price

For Able Security:

Weight of Security = 1/3

Return on Able Security = ($12.00 + $0.75 - $10.00) / $10.00 = 27.5%

For Baker Security:

Weight of Security = 1/3

Return on Baker Security = ($19.00 + $1.00 - $20.00) / $20.00 = 0.0%

For Charlie Security:

Weight of Security = 1/3

Return on Charlie Security = ($30.00 + $2.00 - $30.00) / $30.00 = 6.7%

Return of the Index = 1/3 * 27.5% + 1/3 * 0.0% + 1/3 * 6.7% = 11.4%

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